23E_b - Horngren'S Financial And Managerial Accounting

Question

Question: Hot Bread Bakery reported Net sales revenue of \(44,000 and cost of goods sold of \)33,000. Compute Hot Bread’s correct gross profit if the company made either of thefollowing independent accounting errors. Show your work.

b. Ending merchandise inventory is understated by $8,000.

Step-by-Step Solution

Answer

The correct gross profit would be $19,000.

Step-by-Step-Solution Step1: Calculation of correct COGS

Ending merchandise is understated by $8,000

So the COGS has been overstated by the same amount i.e. $8,000.

So, the correct COGS would be

$$\begin{gathered} CorrectCOGS=CurrentCOGS-Overstatedamount \\ =\$33,000-\$8,000 \\ =\$25,000 \end{gathered}$$

Step 2: Calculation of correct gross profit

$$\begin{gathered} Correctgrossprofit=NetRevenue-CorrectCOGS \\ =\$44,000-\$25,000 \\ =\$19,000 \end{gathered}$$